Editorial: Even CEOs should have to earn their paychecks

Yahoo Chief Executive Terry Semel made more money last year than any other big-company boss in the country: $71.7 million, according to a tally by the Associated Press.

That was the reward that Yahoo's board gave him for running a company that lost ground against rival Google, lagged in delivering a crucial new advertising technology and saw its stock price drop 35 percent.

No wonder one-third of Yahoo shareholders voted Tuesday in favor of a non-binding "pay for performance" plan and against the re-election of the three directors who set Semel's pay package.

Yahoo and every other public company need to listen to the underlying message being sent by angry shareholders: Boards must set executive pay to reflect corporate performance. Pay-no-matter-what isn't acceptable. Shareholders own the company, and exorbitant CEO compensation robs shareholders of money that is rightfully theirs.

The public is fed up. More than 80 percent of Americans think CEOs are overpaid, according to a poll released Wednesday by the Los Angeles Times and Bloomberg.

It's not like any corporate chieftain is working for peanuts. The median compensation for CEOs at the nation's biggest companies was $8.3 million last year, including stock option grants and perks, according to the Associated Press.

For Silicon Valley bosses, the median was $2.1 million, with 12 CEOs earning more than $10 million apiece, according to the Mercury News' annual What the Boss Makes survey.

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Even as directors hand out big paychecks to the CEOs who effectively choose them, they seem too ashamed to defend their decisions to shareholders. When activists at dozens of companies went through the laborious process of getting non-binding "say on pay" measures on proxy ballots this year, corporate bosses universally wailed that it was the end of capitalism as we know it.

In April, the House of Representatives passed a bill, HR1257, that would give shareholders at every company a non-binding referendum on executive pay plans. It's hard to see a downside to requiring boards to justify compensation awards. The Senate should join the House effort to hold boards and CEOs accountable and send the measure to the president.

Many top CEOs feel no amount of pay is too much. But it's that kind of hubris that led to excesses like IPO spinning and the options back-dating scandal.

Even legendary investor Warren Buffett, the world's second-richest man, thinks CEO pay is out of control. "Too often, executive compensation in the U.S. is ridiculously out of line with performance," he told his own shareholders.

Boards of directors - and CEOs themselves - need to set some reasonable boundaries or shareholders will find a sharper weapon than a non-binding vote on pay.